UPDATED: Jan 1, 2023
Life is full of big milestones, like your first car and first paycheck, but there’s no achievement quite like buying your first home. Never mind that it’s a lofty financial commitment – the home buying process itself is no simple feat.
Luckily, if you’re a low- to middle-income first-time home buyer, there are loan programs built with you in mind. Assistance programs and grants can help ease some of the stress tied to buying your first home.
The first-time home buyer (FTHB) programs available typically vary by state. Thinking of buying a home in Alabama? Here are the programs and grants to look into before moving down south.
For most first-time home buyers, the biggest challenge is saving up for the costs of buying a house. From the down payment to closing costs, it can feel like years before you’ll have enough.
That’s why first-time home buyer assistance programs exist to help. Whether it’s more lenient lending requirements, down payment assistance or a second mortgage, the help these programs offer may be just the push borrowers need to achieve homeownership.
Remember, while first-time home buyer assistance programs are available throughout the U.S., they are usually offered locally. In this article, we’re focusing on those offered in Alabama. If you’re considering other areas, be sure to check out the assistance offered for that specific state.
Housing counseling services, like home buying and homeownership classes or financial counseling, are also available locally. Consider looking into the services offered in your area for even more help with setting yourself up for financial success.
According to the Alabama Housing Finance Authority (AHFA), a “first-time home buyer” is anyone who has not owned a home in the last 3 years. To use AHFA programs, you must also meet income and purchase price limits. The house you buy must also be within Alabama state lines.
More specific requirements vary across AHFA programs and specific areas, so be sure to research based on your unique needs.
Backed by the AHFA, these programs are available to anyone considering a home in Alabama.
Program | Amount of Assistance | Type of Assistance | Availability |
---|---|---|---|
Step Up and First Step | 4% down payment assistance up to $10,000 | 30-year, fixed rate mortgage combined with a 10-year second mortgage | All of Alabama (Step Up) and select target areas (First Step) |
Affordable Income Subsidy Grant | Closing cost assistance of 0.5% to 1% of the purchase price, depending on income | Grant | All of Alabama |
Mortgage Credit Certificate | Mortgage interest tax credit of 20%, 30% or 50%, depending on loan amount | Tax credit | All of Alabama |
FTHB Down Payment Assistance (DAP) | Up to $10,000 down payment assistance | Second mortgage | City of Huntsville |
Sources: Alabama Housing Finance Authority, Huntsville Homeownership Programs
The Step Up program, similar to the closely named First Step program, is designed for moderate-income home buyers who can afford a mortgage but who may need help tackling the down payment. Through Step Up, eligible buyers can get a 30-year fixed-rate mortgage combined with a 10-year second mortgage which secures the funds for a down payment.
While Step Up aims to help with a down payment, the Affordable Income Subsidy Grant helps cover 0.5% – 1% of closing costs.
A Mortgage Credit Certificate (MCC) is a tax credit which can give qualified homebuyers a larger federal tax break or tax refund each year.
If you reside or are looking to purchase a home in the City of Huntsville, you may have even more options. Huntsville’s Department of Community Development offers numerous assistance programs to make homeownership more affordable. Most notable is their down payment assistance program (DAP).
Although they can vary, it’s important to know the requirements for AHFA programs to see if you qualify. Let’s get started.
Program | Required Credit Score | DTI Ratio | Income Limits | Owner Occupancy Requirements |
---|---|---|---|---|
Step Up | 640+ | 45% or lower | $159,200 regardless of household size | None |
Affordable Income Subsidy Grant | 640+ | 45% or lower | Annual income cannot exceed 80% of the home's Area Median Income (AMI) | None |
Mortgage Credit Certificate | Varies per loan | Varies per loan | Varies by county | None |
FTHB Down Payment Assistance (DAP) | Varies per loan | Varies per loan | Annual income cannot exceed 80% of the home's Annual Median Income (AMI) | Full forgiveness after 5 years |
Sources: Alabama Housing Finance Authority, Huntsville Homeownership Programs
Your debt-to-income ratio (DTI) represents how much of your money goes toward paying off recurring debts compared to your monthly income. Let’s see an example.
Imagine you have the following monthly expenses (note that these are all regular, recurring debts):
With a monthly gross income of $5,000, calculating your DTI ratio would look like this:
$1,500 + $125 + $100 + $300 = $2,025
$2,025 ⁄ $5,000 = 0.40
0.40 x 100 = 40% DTI ratio
Your DTI is another indicator that lenders will look at as a sign of financial wellness. The lower the percentage, the better. To improve your DTI, consider the benefits of aggressive debt payoff strategies, like the snowball or avalanch methods.
The Department of Housing and Urban Development (HUD) uses income limits to determine eligibility for assistance programs. Income limits vary by area and are updated every year, so be sure that your information is timely and accurate.
State and federal home buyer programs are built to make homeownership more achievable. To reserve savings for aspiring homeowners rather than investors, many loan programs have owner occupancy requirements. This means using a property as your primary residence for a set period of time.
Before committing to a home with an owner occupancy requirement, figure out how long you plan to stay in the area. If your job requires frequent relocation or you’re not looking to settle down, pay extra attention to this aspect of your loan’s requirements.
Though fairly new, the First-Time Home Buyer Savings Account program is another valuable resource available for Alabamians. Through it, first-time home buyers or those who haven’t owned property in 10 years, can open a tax-free savings account at any bank, credit union or financial institution in Alabama.
The principal deposits and earnings will be deductible on your state income taxes and can be put toward the down payment and/or closing costs for a single-family home.
With a mortgage, down payment and closing costs, buying your first home can feel overwhelming. Sometimes all you need is some help, and that’s where first-time home buyer programs step in. Alabama’s programs for low- and middle-income home buyers can help you overcome financial hurdles and achieve homeownership sooner than you might think.
If you think you’re ready to plant roots in sweet home Alabama, start an application for approval online and start searching for your next home.
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